Making Cents of the Bankruptcy Code, Part I

Various Bankruptcy Proceedings
& Eligibility

Part I: Brief Overview

There is a lot of confusion and apprehension about filing bankruptcy. Some people believe they will lose everything they own. Others think they can keep everything and still get rid of all of their debt. Just like anything else, the truth lies somewhere in the middle. It all depends on your unique situation and how the bankruptcy laws apply to you. In this article I will explain the bankruptcy process, and in the process dispel some of the myths surrounding bankruptcy.

Definitions & Explanations

There are two basic types of bankruptcy cases: liquidation and reorganization. A Chapter 7 deals with liquidation proceedings whereas Chapters 11 and 13 deal with reorganizations.

A liquidation is the sale of your property that cannot be exempted (protected). If most or all of your property falls under the “exempt” category then no sale takes place.

A reorganization usually consists of a plan to pay creditors at least a portion of their debts over an extended period of time.

A debtor is a person who owes a debt.

A bankruptcy discharge removes a debtor’s obligation to repay certain debts. This is often just referred to as “discharge.”

A Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts.

A Chapter 11 deals with reorganizations of businesses and individuals.

A Chapter 13, commonly known as “Wage Earner Plan” or “Payback Plan,” deals with the reorganization of individuals with regular income.

Why Would Someone Want to File?

Typically, the objectives in filing bankruptcy are to relieve financial stress, keep the house and/or car, stop garnishments and collection actions against the debtor and the debtor’s property, and/or to obtain a discharge of existing debts. With few exceptions, all bankruptcies stop collection actions against the debtor and the debtor’s property.

Regardless of the motivation or circumstances that drive a debtor to bankruptcy, the ultimate goal is to receive a bankruptcy discharge. There are some particular debts that cannot be discharged: most taxes; student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines; penalties; forfeitures; criminal restitution obligations; certain debts that are not properly listed in the bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs.

If a debtor is found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny the discharge.

To determine whether or not bankruptcy is right for you and whether or not your debts will qualify for a discharge, you should contact an experienced bankruptcy attorney such as Reneau & Shernaman for a free consultation.

Part II: A More in-Depth Look